On Tuesday the Federal Reserve published proposed amendments to Regulation J (Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers through Fedwire) which are intended to clarify and simplify certain provisions of Regulation J that no longer aligned with Regulation CC (Availability of Funds and Collections of Checks) following its amendments, after it was amended in 2017.
The proposed Regulation J amendments align the regulation with the distinction made in the Regulation CC amendments, and established in Article 3 of the UCC, between checks (which by definition must be reduced to writing) and electronically-created items, or ECIs. Under the proposed amendments, the Reserve Banks would require senders of ECIs to provide certain warranties and indemnities, in an effort to shift liability to the sending parties who are in a position to know whether they are sending an electronic check (which enjoys standard check warranties) or an electronically created item (which does not).
The proposed amendments additionally smooth out some bumpiness financial institutions may have experienced in moving Fedwire payments to the ISO 20022 financial messaging standard. ISO 20022 is the global financial messaging standard for SWIFT (the Society for Worldwide Interbank Financial Telecommunication), and its adoption for Fedwires is necessary for “straight through processing” of a payer instruction from a non-US bank to a US bank. Put another way, unified financial messaging standards don’t require translation, and are therefore faster. Concerns were raised that certain terms used in the ISO 20022 standards (such as “agent”, “creditor”, and “debtor”) would create certain legal obligations. The proposed amendments clarify that usage of any term in the financial messaging standard does not confer or connote any specific legal status, or responsibilities.